What Requirements You’ll Wish You Had Known Now

Uncovering the Implied Requirements of Healthcare Reform

Health-plan executives and employees are in a heads-down, reactive mode right now. Initial regulations describing aspects of the Patient Protection and Affordable Care Act are beginning to trickle out of federal agencies, and regulatory milestones tied to end of year renewals are looming.

How are health plans meeting the challenge? By spinning up new healthcare reform Program Management Offices (PMOs) and project teams and feverishly combing through all credible sources to develop the best, most current checklists of healthcare reform requirements.

As necessary and appropriate as these activities are, they may bring a false sense of security to health-plan executives who assume their PMO dashboards and checklists will keep them “on top of” healthcare reform. These sophisticated tools will keep them apprised of the short-term requirements resulting from regulatory changes—but they won’t fully prepare them for the changing market conditions those regulations will bring.

The only way to uncover the requirements driven by changing market conditions—or the implied requirements of healthcare reform—is to complete a critical assessment of the future stages of the market life cycle and what those mean to your business (read my previous article on the life cycle stages here). If you complete that assessment, you’ll identify significant business, operational and information technology changes that must be made to keep your plan competitive (not just compliant) in the post-reform world.

Some of those changes can be immediately assigned to your healthcare reform project team, but others cannot. The items your executive team must tackle involve changing your core business strategy, operational and technological capabilities and talent management so you can serve your members in the future.

Once you feel confident your team will meet the immediate requirements of reform, it’s time to cast your eye to the future and imagine your health plan in 2014. This visioning exercise will help you and your executive team to uncover what you must do today to achieve competitive advantage tomorrow.

A Trip to the Future

The year is 2014. You’ve just come through the open enrollment period for the benefit year, and your marketing plans were successful. You’ve carved out a new customer market for your health plan, and you’re now serving tens of thousands of new members.

The game has changed in this post-reform world, however, because new regulatory requirements have changed the fundamentals of the market. Gone are the days when you worked primarily with employers and enjoyed strong brand loyalty among members. Your challenging new reality, which you’ve adapted to creatively and effectively, involves:

A consumer-centric market

A new underlying revenue model in which subsidies play a significant role

A new perception among consumers that health plans are essentially interchangeable commodities

A powerful new role for the federal government in your business

The everyday experience of managing your health plan has changed dramatically in the past four years. As you walk through your offices and talk to your executives, you reflect on how far you’ve traveled to achieve the competitive advantage you now enjoy.

Four Changes on the Road to 2014

The changes you’ve made fall into four broad categories:

Transition to a Consumer-Centric Market. Your new members have come from several sources, including the ranks of the formerly uninsured, those who once had employer-sponsored coverage, and those who changed from other individual insurance coverage. The first two member types are your new consumer customers, and their needs and expectations are different than those of your pre-reform individual customers.

These two customer types are new to individual coverage, and your team is their best and only resource for the information they need to feel secure about their benefits. This need for security is particularly high among members who once had employer-sponsored insurance. No longer can they go to the benefits manager or human resources department to ask routine questions or get help solving minor issues affecting their eligibility. You’re they’re only resource now. Fortunately, you invested in your customer service capabilities and prepared your staff to meet the service, timeliness and quality requirements of this new demand. Your members’ needs are met, and they feel secure about the coverage you provide.

Another impact to your business has been the sheer volume of transactions. Your customer service team has its hands full meeting the changing needs of your members, and your operations and IT teams are managing a dramatic increase in the volume of transactions required to maintain your members’ eligibility. Prior to reform, you interacted primarily with employer-sponsored members. When you completed seemingly simple tasks, such as sending out bills for premium, the information went to one employer and covered multiple members. Now—thank you, reform—that efficient “one-to-many” customer relationship has changed to a “one-to-one” relationship with each individual customer. As a result, the number of administrative transactions you oversee has skyrocketed. But that isn’t the only challenge. When an administrative transaction goes awry, as sometimes happens, your team is no longer dealing with a professional benefits manager to resolve a customer’s problem. Now, you interact with a “novice” consumer who requires more patience and help in understanding their healthcare benefits.

Subsidization of Premiums. One of the most demanding changes you’ve managed has been the transition in your core revenue model as a result of premium subsidization. Looking back, life used to be fairly simple. You would send bills to your customers for their premiums, and they usually paid them as presented, unless some minor eligibility issues needed to be resolved. Now, close to 80 percent of your new consumer members are eligible for a federal premium subsidy, most of which are in the form of advanceable premium tax credits, so you now collect premiums from federal government agencies as well as members. The amount of the subsidy is different for each customer, as it is a variable amount based on income.

This change has impacted every area of your business but is particularly challenging for the IT department. Not only is IT struggling with far more transactions, the staff also needs to re-architect key components of your member eligibility and general ledger systems so that premium payments from multiple sources can be posted to one member account without error-prone manual workarounds. IT must also develop solutions to ensure that rules for maintaining member eligibility can be followed in the case of a premium discrepancy related either to a member’s government subsidy or to the portion of the premium that is the member’s responsibility.

Your job also involves managing a new category of financial risk. For every member and member month, your subsidized membership base must be reconciled with the records of a federal government agency to ensure they match. When your membership records match, you receive payment from the government for their premium subsidies (in arrears, and net of any amounts held back for other discrepancies, penalties, etc.). When your membership records don’t match, you don’t receive subsidy payments for those members until after the discrepancies have been reconciled (or, not at all, if it is determined that a member was not enrolled in your plan for the discrepant member month(s)). Until then, you accrue accounts receivable and possibly incur claims expenses that could require recovery in the future. Making sure these accounts receivable balances don’t grow unchecked requires constant vigilance from you. You’ve also had to invest in a bevy of reports, control processes, and risk mitigation tools to protect your bottom line.

Commoditization. While the health insurance exchanges have been a powerful tool through which to attract and enroll new consumer members, they have also been surprisingly detrimental to your competitive position. Because the state Department of Insurance determines which health plans can participate in the exchanges and monitors their quality and performance, the exchanges make money-saving choices by consumers safer. In the minds of consumers, any plan that is available in the exchange has the “government stamp of approval” and therefore must be as good as any other. The downside of this arrangement for health plans is that consumers suddenly value your brand less than they did before reform.

In response to this new competitive dynamic, you have found creative ways to demonstrate to consumers that your benefits are worth a premium. Even though commoditization is still relatively new in healthcare, it is not new to other industries, so that is where you initially looked for inspiration to develop strategies to countermand the effects of commoditization. So far, the feedback you’re receiving from customer service is reassuring. Thanks to the investments you made in your customer service systems, your customer surveys indicate that your representatives are really connecting with members, helping them solve problems and find answers, and doing an excellent job anticipating additional customer needs. Given this, you are confident the future quality and service ratings reported in the exchanges will place your plan far above your competition.

Federalization. Another major change to your business that is requiring increasing attention is the changing role of the federal government versus state governments in overseeing your health plan. You’ve always had a good relationship with your state Department of Insurance, and you have worked with them as a partner in addressing any concerns they had. Now, you also manage a regulatory relationship with a federal government agency that has oversight of your health plan because it pays premium subsidies for many of your new members. The federal agency has its own set of rules to follow. To make matters worse, many of the rules are still relatively new and sometimes lack the specifics you need to make decisions with confidence.

Responding to this increased oversight and uncertainty has been a challenge. You’ve seen what happens when health plans don’t follow the federal rules, and you don’t want to suffer that fate. The Centers for Medicare and Medicaid Services (CMS) sanctioned several of your competitors when they failed to comply with requirements for Medicare Advantage and Part D. As a result, your competitors were unable to enroll new members until the sanctions were lifted. Watching from the sidelines, you learned that taking a reactive, “wait and see” approach to complying with federal regulations would be too risky. Instead, you’ve opted to invest in an organization that clearly understands roles and accountabilities for compliance and is ready to manage compliance proactively. With this approach, you’ve stayed on the “good side” of your new federal regulators and let them focus their attention on your competitors instead.

The Reward Ahead

On the road to 2014, you learned that healthcare reform had many more requirements to consider than those you gleaned from reviewing the regulations. As you think back to 2010, you’re glad you started early in identifying and assessing the implied requirements of healthcare reform. Given the capabilities you had then, you needed several years to enhance and optimize your customer service operations before the market requirements changed. Your competitors didn’t do this early work, and they are still trying to figure out what had changed while you fine-tune your operations.

Your competitors were “on top of” the regulations, but you were on top of the regulations and the changes they created in the market. Thanks to your strategic thinking and execution, your plan distinguished itself from the competition and achieved an advantageous position in the marketplace.

About The Author

David Goodson is a senior member of Point B’s health care practice. His key area of expertise is the payer segment of the health care market. Goodson has 18 years of experience in the field, and his work on behalf of clients includes:

Providing strategic and tactical guidance about how to comply with the explicit requirements of the recently-enacted health care reform law

Helping health care companies understand the implied requirements of the law, the impacts of which will emerge over time

Identifying opportunities for membership growth and new revenue streams driven by changes in the health care market and expanded government spending on health care services

Goodson is sought after for his expertise in health care payer issues, serving as a featured speaker at health care events such as the 2008 American Pharmacists Association (APhA) Annual Meeting and publishing articles in publications such as Healthcare Reform Magazine. He has presented as a subject matter expert to U.S. Senate and House of Representatives staff and to national associations on behalf of the Centers for Medicare and Medicaid Services (CMS). One of the milestones of his career to date is working with CMS to create a pharmacy benefit safety net program that protected millions of vulnerable, low-income seniors when Medicare Part D was launched in 2006. Goodson also played a central role in the restoration of a key federal government regulatory relationship for 36 Medicare Part C and D contracts worth more than $8 billion in premium revenue.

Prior to joining Point B, Goodson was an executive at WellPoint Inc., the largest health benefits company in the United States, where he held a number of positions with profit and loss, operations and compliance responsibilities including vice president in the senior business (Medicare) division. His accomplishments at WellPoint include being selected for the company’s prestigious Executive Excellence Program for rising stars at the company and winning a “Best of Blue” award from Blue Cross Blue Shield, which recognizes programs and best practices that would become candidates for nationwide implementation. Goodson earned his MBA and BBA from Mercer University in Macon, Georgia.

Point B is an employee-owned management consulting firm with a track record of transforming strategy into reality. Point B’s hundreds of clients, including The State of Washington, Microsoft, Cisco, CIGNA, The Federal Home Loan Bank, Underwriters Laboratories, and The Children’s Hospital Association have sought out Point B for its objective leadership and deep expertise. Founded in 1995, Point B has since grown into a $90 million business with more than 350 associates in Seattle, Portland, Denver, Phoenix, San Francisco, Los Angeles and Chicago. The firm completes more than 800 projects per year, with about 300 of them spanning the healthcare industry. Point B has been honored repeatedly as an exceptional place to work, including being named a “Top Small Workplace” by The Wall Street Journal. In 2008, Consulting Magazine recognized Point B with its “Best Firms to Work For” award and ranked the firm #1 in its Leadership category among 205 consulting firms worldwide.